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Facts
The assessee, a credit cooperative society, claimed deduction under Section 80P for interest income earned from deposits in a cooperative bank. The AO denied this deduction, treating the interest as 'income from other sources'. The FAA upheld the AO's decision.
Held
The Tribunal held that the assessee, being a credit cooperative society registered under the Tamil Nadu Cooperative Societies Act, is entitled to deduction under Section 80P(2)(d) for interest income earned from deposits in other cooperative banks, as it is part of its business activity.
Key Issues
Whether interest income earned by a credit cooperative society from deposits in another cooperative bank is eligible for deduction under Section 80P of the Income Tax Act.
Sections Cited
80P, 143(3), 80A(5), 139(1), 139(4), 142(1), 148, 80P(2)(a)(i), 80P(2)(d)
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Income Tax Appellate Tribunal, ‘B’ (SMC
Before: SHRI GEORGE GEORGE K
O R D E R These appeals filed by the assessee are directed against two orders of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, both dated 26.05.2025 passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Years are 2017-18 & 2020-21.
The solitary issue raised is whether the First Appellate Authority (FAA) is justified in confirming the AO’s action in denying the claim of deduction u/s.80P of the Act.
& 1697/Chny/2025 :- 2 -: 3. Brief facts of the case are as follows: The assessee is a credit cooperative society registered under the Tamil Nadu Cooperative Societies Act, 1983. It is engaged in the business of providing credit facilities to its members. For the assessment year 2017-18, the return of income was filed on 21.03.2018 declaring ‘nil’ income after claiming deduction of Rs.16,56,206/- u/s.80P of the Act. The assessment was completed u/s.143(3) of the Act vide order dated 17.08.2021 wherein the claim of deduction u/s.80P of the Act was denied. The AO held that assessee had earned interest income of Rs.79,33,848/- from Coimbatore District Central Co-operative Bank Ltd., (CDCCB) and the same is to be assessed as ‘income from other sources’ and not entitled to deduction u/s.80P of the Act.
Similarly for assessment year 2020-21, the return of income was filed by the assessee on 12.01.2021 declaring total income of Rs.19,000/- after claiming deduction u/s.80P of the Act amounting to Rs.38,54,436/-. The assessment was completed u/s.143(3) of the Act vide order dated 28.09.2022. In the said assessment order, AO brought to tax interest income received from CDCCB as ‘income from other sources’ and thereby denying the claim of deduction u/s.80P of the Act.
& 1697/Chny/2025 :- 3 -: 5. Aggrieved by the assessments completed for assessment year 2017-18 and 2020-21, assessee filed appeals before the FAA. The FAA confirmed the orders of AO disallowing the claim of deduction u/s.80P of the Act.
Aggrieved by the orders of FAA, assessee has filed the present appeals before the Tribunal. The Ld.AR submitted that assessee is entitled to deduction u/s.80P(2)(d) of the Act with respect to interest income received from CDCCB. It was submitted that CDCCB is registered under Tamil Nadu Co-operative Societies Act, 1983 and same is to be treated as co-operative society. In support of his submission, the Ld.AR relied on the Chennai Bench order of the Tribunal in the case of M/s. Ikkaraiboluvampatti PACCS in order dated 02.11.2022. The Ld.AR submitted that in the above mentioned order, the Tribunal has considered whether the interest received from CDCCB is to be allowed as deduction u/s.80P(2)(d) of the Act. It was stated that the Tribunal after considering the judicial pronouncement on the issue, had concluded that assessee is entitled to deduction u/s.80P(2)(d) of the Act.
& 1697/Chny/2025 :- 4 -: 7. The Ld.DR on the other hand supported the orders of the AO and the FAA.
I have heard rival submissions and perused the material on record. The claim of deduction u/s. 80P of the Act was denied by the AO and confirmed by the FAA because the interest income received from CDCCB were treated as ‘income from other sources’. On identical facts, the Chennai Bench of the Tribunal in the case of M/s.Ikkaraiboluvampatti PACCS, supra, had held that interest income received from CDCCB is to be treated as deduction u/s.80P(2)(d) of the Act. The Chennai Bench order of the Tribunal after following the judicial pronouncement on the subject held that District Central Co-operative Banks are primarily a Co-operative Society being registered under Tamil Nadu Co-operative Societies Act, 1983. Therefore, the interest income received by a Co-operative Society from such Co-operative Banks are entitled to benefit of section 80P(2)(d) of the Act. The relevant finding of the Tribunal in this regard reads as follows:- 6. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below along with case laws cited by both the parties. The issue of taxability of interest earned on fixed deposits with other Co-operative Banks or Societies by Co- operative Society is no longer res integra. The co-ordinate Bench of ITAT Chennai, in the case of M/s.DAEE Co-op. T & C Society v. ACIT (supra), had considered an identical issue and after analyzing provisions & 1697/Chny/2025 :- 5 -: of Sec.80P(2)(a)(i) of the Act & u/s.80P(2)(d) of the Act, and also by considering the decision of the Hon’ble Supreme Court in the case of Totagars Co-operative Sales Society Ltd. v. ITO and also by following the decision of the Hon’ble Madras High Court in the case of CIT v. Veerakeralam Primary Agricultural Co-operative Credit Society, reported in [2016] 388 ITR 492 (Mad.), held that interest income earned from fixed deposits with other Co-operative Societies or Banks, is eligible for deduction u/s.80P(2)(d) of the Act, because, District Central Co-operative Banks are primarily a Co-operative Society registered under Tamil Nadu Co-operative Societies Act, 1983. The relevant findings of the Tribunal are as under:
8. We have heard both the parties, perused the materials available on record and gone through the orders of authorities below along with various case laws cited by both the parties. There is no dispute with regard to the fact that the assessee is a credit cooperative society registered under the TamilNadu Cooperative Societies Act, 1983. It is also not in dispute that the assessee is engaged in the business of providing credit facilities to its members. The AO has disallowed deduction claimed u/s.80P(2)(a)(i) of the Act primarily on two grounds. The first objection of the AO is with regard to claim of deduction in the light of provisions of Section 80A(5) of the Act which restricts the deduction unless such deduction is claimed in the return of income. We have gone through the provisions of Section 80P read with Section 80A(5) of the Act and found that nowhere in Section 80P or in Section 80A(5) of the Act it is mentioned that the assessee is required to file its return of income within the prescribed time provided u/s.139(1) or 139(4) of the Act. But, what is required to be seen is whether the assessee has made a claim in the return of income filed for the relevant year or not, even though such return is not filed within due date. In this case, the assessee although not filed its return of income for the impugned assessment year u/s.139 of the Act but such return of income has been filed in response to the notice issued u/s.148 of the Act and in the said return of income the assessee has made a claim for deduction u/s.80P(2)(a)(i) of the Act. Therefore, we are of the considered view there is no merit in the arguments taken by the ld.DR that the assessee is not entitled for deduction u/s.80P unless such deduction is claimed by filing return of & 1697/Chny/2025 :- 6 -: income within the prescribed time allowed u/s.139(1) or 139(4) of the Act. This view is fortified by the decision of the Hon’ble Kerala High Court in the case of Chirakkal Service Co-operative Bank Ltd., vs. CIT (2016) 384 ITR 490 (Ker), where the Hon’ble Kerala High Court held that “a return filed by the assessee beyond the period stipulated u/s.139(1) or 139(4) or 142(1) or 148 of the Act can also be accepted and acted upon provided further proceedings in relation to such assessments are pending in the statutory hierarchy of adjudication in terms of the provisions of the IT Act. In all such situations, it cannot be treated that a return filed at any stage of such proceedings could be treated as non est in law and invalid for the purpose of deciding exemption under Section 80P of the Act”.
Coming back to the issue of interest income earned from fixed deposits and claimed deduction u/s.80P(2)(d) of the Act. The AO has denied deduction claimed u/s.80P(2)(d) of the Act in respect of interest income earned from a co-operative bank on the ground that as per the said provisions, interest earned from any other cooperative society is only eligible for deduction u/s.80P(2)(a)(i) of the Act. The AO has taken support from the decision of the Hon’ble Supreme Court in the case of M/s. Totagars Co- operative Sales Society Ltd., supra. We have gone through the findings recorded by the AO in the light of the decision of the Hon’ble Supreme Court in the said case and find that the fact of the case before the Hon’ble Supreme Court is entirely different from the facts of the present case. In the case before the Hon’ble Supreme Court, the assessee was a cooperative sales society which is engaged in the business of trading in agricultural produce for its members and during the course of its business it has parked surplus funds in other cooperative banks / nationalized banks and earned interest. In those facts, the Hon’ble Supreme Court came to the conclusion that the assessee is not entitled for deduction towards interest income u/s.80P(2)(d) of the Act, because such interest is not earned from its business activity. In this case, the assessee is primarily engaged in the business of providing credit facilities to its members and in the course of its business it has parked funds collected from its members in other cooperative banks / nationalized banks as per the statutory requirements of the & 1697/Chny/2025 :- 7 -: cooperative societies Act. The assessee has treated interest earned from other cooperative banks as part of its business activity. Once the assessee has earned interest income as part of its business activity and such interest income is earned out of the funds belonging to its members, then the assessee is entitled for deduction u/s.80P(2)(d) of the Act in respect of such interest income. Therefore, we are of the considered view that the case laws relied upon by the ld.AO in the case of Totogars Cooperative Sales Society Ltd., is not applicable to the present facts. We further noted that an identical issue was considered by the Hon’ble Madras High Court in the case of CIT vs. Veerakeralam Primary Agricultural Co-operative Credit Society (2016) 388 ITR 492 (Mad), where the Hon’ble High Court after referring to the decision of the Hon’ble Supreme Court in the case of Totagars Co-operative Sales Society Ltd., held that the benefit of deduction u/s.80P of the Act is excluded for cooperative banks but credit cooperative societies are entitled to claim deduction u/s.80P of the Act in respect of interest income earned from deposits kept in other co-operative banks.
10. In this view of the matter and considering facts and circumstances of the case, we are of the considered view that the ld.CIT(A) was right in allowing the benefit of deduction claimed u/s.80P of the Act in respect of income derived from the activity including interest income earned from fixed deposits. We do not find any error or infirmity in the order of the CIT(A). Hence, we are inclined to uphold the order of the CIT(A) and dismiss the appeal filed by the Revenue.
In this view of the matter and consistent with view taken by the coordinate bench, we are of the considered view that the assessee is entitled for deduction towards interest income earned on fixed deposit with CDCCB, Coimbatore, u/s.80P(2)(d) of the Act, and thus, we set aside the order of the Ld.CIT(A) and direct the AO to delete the additions made towards interest income under the head ‘income from other sources’.
& 1697/Chny/2025 :- 8 -: 9. In light of the Co-ordinate Bench order of the Tribunal in the case cited supra, which had decided that assessee society is entitled to deduction u/s.80P(2)(d) of the Act with regard to interest income earned on investment with CDCCB, I set aside the orders of the FAA for the assessment years 2017-18 & 2020-21. I direct the AO to delete the addition made towards the interest income under the head ‘income from other sources’. It is ordered accordingly.
In the result, both the appeals filed by the assessee are allowed.
Order pronounced in the open court on 9th September, 2025 at Chennai.